Why there is a difference between EPF interest rate and PPF/NSC interest rate? How is EPF organisation able to provide high interest rate compared to others? Don't they invest similarly like government securities and corporate bonds?
- Yash
The EPF does not always offer higher returns than PPF. The recent high returns from this vehicle are an aberration. In practise and in design, Employee Provident Fund (EPF) is very different from Public Provident Fund (PPF). Small savings like PPF/NSC are contractual borrowings of the government in which you invest your money and the government pays a fixed interest at a rate decided every quarter. The rates are aligned with G-Sec rates of similar maturity with a spread of 0.25 percent.
On the contrary, when employees contribute to their EPF account, the EPFO then invest that money across bonds, g-secs and recently equities, to generate returns. Based on the 'surplus' it is able to generate each year, the EPFO declares a 'return'. This return varies from year to year based on the investment performance of the EPFO corpus.
This article was originally published on June 02, 2016.
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